Working Group Rejects Revolving Loan Program to Fund Clean Energy

Surprisingly, hand-picked working group does not suggest drastically scaling back clean energy surcharge.

For the past few months, Board of Public Utilities President Lee Solomon has often talked about creating a new revolving loan program to pay for New Jersey's clean energy initiative, a move that could eliminate, or at least reduce, a sometimes hefty surcharge on customers' gas and electric bills now used to fund the effort.

But in a surprising development, a working group handpicked by the state agency is suggesting a revolving loan program may not be the best way to finance energy efficiency projects, certainly not immediately, according to a report released yesterday.

"Although revolving funding loan sources may be able to provide a broader role in energy efficiency on a going forward basis, we caution they should not be viewed as a quick, inexpensive or easy replacement for other incentives," the Clean Energy Funding Working Group report said.

The report noted various studies have shown such revolving loan programs have "had difficulty covering their own costs, getting participation from the eligible population, and realizing energy savings."

According to the draft Energy Master Plan, "the cost of the improvements (for energy efficiency projects), along with a reasonable return, would be repaid by the customer out of the energy savings, and the cost of the original loan would be paid by the Clean Energy Fund. Such a program would be self-sustaining."

The working group, which consisted of industry officials, utility executives, and consumer advocates, examined the way New Jersey funds its clean energy programs, and suggested ways to reduce the state's reliance on the societal benefits charge (SBC), a surcharge most utility customers pay to support state programs to reduce energy use and to promote cleaner energy sources, such as solar and wind power.

But the group stopped short of recommending a drastic scaling back of the surcharge, which can cost large energy users, such as big institutions and manufacturers, upward of $1 million a year. That prospect had worried clean energy advocates and even some lawmakers, who view the funding as crucial to New Jersey achieving ambitious goals to increase its reliance on cleaner energy and to reduce energy consumption.

For most consumers, the surcharge is barely noticeable, costing average residential customers about $5 per month. Nevertheless, it still raises large amount of funds each year -- this year alone, the budget is $319 million.

In its report, the working group did recommend several changes to the way the clean energy funds are managed, including doing a more accurate appraisal of how much money New Jersey will spend each year. In the past, too often the state has collected more money than it is either willing to or can spend, the report noted, leaving surplus funds vulnerable to being diverted to other uses. In 2010, for example, the Board of Public Utilities (BPU) approved a budget of $460 million, but committed to spend only $381 million.

The program "should spend what it collects and not collect what it cannot or will not spend," according to the report. It also argued that a more accurate budget process would provide opportunities to reduce the societal benefit charge.

Other reductions in the surcharge could be gleaned from streamlining the many administrative layers currently in place to disburse the clean energy funds. To that end, it recommends eliminating several outside contractors used to administer the program and replace them with a single program administrator hired in a competitive process. Such a structure, the report argued, would improve the program effectiveness and reduce costs.

In looking at revolving loan programs, the working group said another issue with that approach is that it requires a large pool of upfront money to make the loans. "Developing a pool of money to provide the initial loans, either through borrowing or the imposition of a customer charge, may be problematic," it concluded.

Steve Goldenberg, an attorney who represents large energy users and was a member of the working group, noted the group did not rule out using revolving loan funds at some point, but recognized they have to be phased in over time, if the state does choose that route.

"We recognize it could be attractive to large users, but less so for residential customers," Goldenberg said. "In a tough economy, people are having trouble spending money in the first place."

Others, however, welcomed the reservations about creating a revolving loan fund. "Revolving loan funds haven't worked to clean up the water infrastructure in urban areas," said Jeff Tittel, director of the New Jersey Sierra Club, referring to the failure of municipalities to use such a fund to eliminate combined sewer overflow systems that pollute waterways. "Why would it work for energy?"